"Reaffirming" Certain Debts When You File For Bankruptcy

Frequently people state: "I don't want to lose my car if I file for bankruptcy. If I keep making my payments, can I keep my car?" Sometimes people ask: "I have this one credit card that I always pay on time and I want to keep it for emergencies after I file for bankruptcy. Can I do that?"

The answer to these inquiries is found in the concept of "reaffirming" certain debt. When a person files for Chapter 7 Bankruptcy Protection, the law requires the debtor to "Schedule" or "List" everyone and every company that person owes money to. This includes those creditors one may want to voluntarily continue paying - which the law does not prevent or prohibit. Anyone who files for bankruptcy is free to continue paying any one, two or all of their creditors, if they choose and if they are able. If there is a particular creditor who has the right to repossess collateral securing a debt, then the choice to continue paying may be formalized into what is called a "Reaffirmation Agreement."

Reaffirming a particular debt is NOT required by law. Doing so is voluntary on the parts of both the debtor and the creditor. The formal agreement states without question that the debtor is asking the court to exclude that particular debt from the debtors eventual "discharge" of personal responsibility from all other debts, so doing so is a very important decision. Certainly, reaffirming on a car loan has advantages and most people do in fact reaffirm with their car loan lenders.

However, reaffirming on a car loan is NOT the only choice and not always the best option.

If you owe more on the car than it is worth, is reaffirming really a good idea? You won't be able to sell the car to pay off the loan so you are stuck with it until you pay it off. If you owe $15,000 on a car that is worth $10,000 is that really a good decision? Many people discover that there are lenders anxiously waiting for your bankruptcy to be over so they can put you into a new or newer car, that is more reliable and has some warranty coverage, and that is worth at least the amount of money you will need to borrow and WITHOUT rolling the balance of the old loan into the new loan because the old loan can be discharged in the bankruptcy.

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